If you are an authorised dealer, distributor or stockist of a large brand (a two-wheeler or car maker, a steel or cement company, an FMCG, pharma or electronics major), most of your working capital is tied up in one thing: stock bought from that brand. Manufacturers want payment quickly. Your customers want credit. Dealer finance is built to fill exactly that gap.
What is dealer or channel finance?
Dealer finance, also called channel finance or supply-chain finance for dealers, is a short-term credit facility a bank or NBFC offers to the dealers of a large company (the "anchor") for buying inventory from that company. SBI describes it as financial support to corporate distribution networks, with working capital and term loans for select dealers of identified companies, either as bill discounting or as cash credit.
It rests on a three-way relationship:
- The anchor (manufacturer or brand) has a programme with the lender, recommends dealers and shares supply and payment data.
- The dealer gets a limit and uses it only to pay that anchor.
- The lender pays the anchor directly against invoices and collects from the dealer on the due date.
The terms are usually written into a tripartite agreement, or into a programme agreement with the anchor plus separate loan documents with each dealer.
How does dealer finance work, step by step?
Banks run these programmes on online platforms. Bank of Baroda and SBI both describe two routes:
- Pull method. You place an order. The anchor raises the invoice and asks the bank's platform for payment. The system checks your available limit, the invoice and any overdues, then pays the anchor, who ships the goods.
- Push method. You start the request yourself on the bank's portal, and the funds go to the anchor's account.
From there:
- Each invoice is a separate drawdown with its own due date, and the credit period starts from disbursement.
- You sell the stock and collect from your customers.
- On or before the due date you repay that invoice, usually from your current account. Banks often take post-dated cheques or an e-NACH mandate.
- The limit revolves. Repaid amounts become available for the next order.
Credit periods are short. SBI's e-Dealer Finance Scheme offers up to 90 days with yearly renewal. HDFC Bank offers dealers credit of up to 90 days for purchases from corporates. Indian Overseas Bank's scheme finances invoices for up to 120 days, under a 12-month facility renewed annually.
Who pays the interest, and is there an "interest-free period"?
In many programmes the dealer pays interest from the date of disbursement. In some, the anchor bears interest for the first few days as a sales incentive, or the lender prices the facility off the anchor's stronger credit. Check the programme terms: who pays interest from which day, the rate after the free period, and the penal charges if you miss a due date.
Dealer finance vs cash credit vs inventory funding
| Dealer / channel finance | Cash credit | Inventory funding (general) | |
|---|---|---|---|
| Linked to | One anchor's programme | Your whole business | A specific stock pool |
| Use of funds | Only purchases from the anchor | Any working capital need | Buying or holding stock |
| How drawn | Per invoice, paid to the anchor | Running account, up to drawing power | Varies by lender |
| Tenor per drawdown | Fixed credit period | Repayable on demand; reviewed yearly | Varies |
| Key assessment | Track record with the anchor, offtake | Your financials, stock and receivables | Stock value and turnover |
| Monitoring | Invoice-level due dates | Monthly stock statements | Stock statements or audits |
Many dealers use both: dealer finance for the main brand's purchases, and a cash credit limit for everything else (other brands, salaries, rent, customer credit). Our guide on term loans vs cash credit vs overdraft explains how CC drawing power works. If you are a real estate developer, "inventory funding" means something quite different. See inventory funding for builders.
Who offers dealer finance?
- Banks, through tie-ups with manufacturers. Examples include SBI (e-Dealer Finance Scheme and corporate dealer financing), Bank of Baroda, HDFC Bank, Axis Bank and Indian Overseas Bank. Each publishes its own programme terms.
- NBFCs, especially in automobiles and consumer durables, where captive finance companies and large NBFCs run dealer trade-advance programmes.
- Fintech supply-chain platforms, which usually connect anchors, dealers and lenders. The money itself must come from an RBI-regulated bank or NBFC.
A dealer can usually use a programme only if the lender has a tie-up with your anchor. SBI's scheme, for example, is open to authorised dealers of industry majors with which the bank has a tie-up arrangement.
What do lenders assess for dealer finance?
Because the anchor relationship carries much of the risk, lenders look at both sides.
The anchor
- Its credit rating and willingness to recommend dealers and share data. IOB, for example, targets anchors with an investment-grade external rating, and asks for an A rating or better if the dealer is new.
- Its support if a dealer defaults. HDFC Bank takes a recommendation letter from the corporate, plus a commitment to stop supplies if the dealer defaults.
You, the dealer
- Years with the anchor. IOB looks for a dealer–anchor relationship of at least two years.
- Offtake. How much you buy from the anchor each month, and how steadily.
- GST data. Lenders increasingly size limits from GST returns. IOB's formula is average monthly GST sales (or projected sales) with the anchor multiplied by the credit period, or the limit the anchor recommends, whichever is lower.
- Your own financials, repayment history and credit score.
- Security. Typically hypothecation of stock and receivables arising from the financed invoices, personal guarantees, and collateral above certain amounts. IOB, for instance, asks for no collateral up to ₹2 crore and a minimum share of collateral (or CGTMSE cover) above that.
An illustration (example figures): you buy about ₹40 lakh a month from the anchor on a 60-day credit period. On IOB's method that supports up to about ₹80 lakh, but if the anchor recommends ₹70 lakh, the limit would be ₹70 lakh. Your lender's own policy decides the final number.
CGTMSE cover for micro and small dealers
Dealers and distributors registered as micro or small enterprises can benefit from the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). It guarantees collateral-free credit from member lenders, and its FAQs confirm that wholesale trade is eligible. Coverage goes up to ₹10 crore per borrower and carries an annual guarantee fee. Whether to use it is the lender's call, but some dealer schemes, including IOB's, accept CGTMSE cover in place of collateral.
Digital platforms and RBI's rules
If your dealer finance runs through an app or platform, RBI's digital lending rules apply to the regulated lender behind it. They were first issued as the Digital Lending Directions, 2025 and now sit in each type of lender's consolidated Credit Facilities Directions. For banks, they require among other things:
- a Key Fact Statement (KFS) before you sign, showing the annual percentage rate and charges
- disclosure of the lender's name and the platform (lending service provider) it uses
- disbursal into the borrower's bank account. The exception is a loan for a specific end use paid directly to the end beneficiary, which is how dealer finance pays the anchor. It must never go to the platform's own account.
Before signing up, check that the lender named on your documents is a bank or RBI-registered NBFC.
Where TReDS fits in
TReDS (Trade Receivables Discounting System) is the mirror image of dealer finance. It helps MSME sellers turn invoices accepted by large buyers into cash, and financing is without recourse to the MSME seller. RBI consolidated its TReDS rules into new Directions on 23 June 2026. If your distribution business also sells to corporates or PSUs, TReDS may help you collect faster. Our contractors' working capital guide and trade finance guide explain how it works.
Risks to manage
- Missing a due date is visible to the anchor and the lender at once. Supplies may stop, and a bill overdue for more than 90 days can make the account a non-performing asset under RBI's rules.
- Over-ordering because credit is easy leaves you with slow stock and a bill due in 60–90 days.
- Concentration. Your limit depends on one brand. If the dealership ends, so does the programme.
- Hidden costs. Compare the all-in cost (interest, processing fees, penal charges) with a regular CC limit.
How Biz Corp Solutions helps
We work with dealers, distributors and stockists to find out which lenders have programmes with their anchor and to compare dealer finance with cash credit or a loan against property. We prepare the GST, financial and offtake data lenders ask for, and approach suitable banks, NBFCs and financial institutions across Maharashtra, Gujarat and Karnataka. Limits and terms are always the lender's decision. Explore our inventory funding service.